PMG SAYS USPS MUST FIRST SOLVE FINANCIAL CHALLENGES

Source: PostCom Bulletin

Postmaster General Pat Donahoe this week at the PostalVision2020/2.0 conference made sure that participants were reminded of thePostal Service’s current financial situation and ongoing financial challenges if meaningful legislative reform is not passed. “From thePostal Service’s perspective in 2012,” he told the conference participants, “we need to solve the issues facing our industry.” “Weneed to put ourselves on good financial footing,” he said, “so we can have a bright 2020.”

“The USPS is incurring unsustainable losses,” the Postmaster General told the PV2020 audience, “and if we do nothing we will looklike Greece.” He noted that the USPS would be running a yearly expense of about $81 billion if it takes no action, and even if itshealth benefits pre-funding requirements were eliminated, that would only decrease expenses by about $7 billion annually, whichwould still leave the USPS with an unsustainable business model. The Postmaster General showed a slide that estimated the USPS’projected net debt at $92.1 billion by 2016 if no changes are made. He said that Greece has a debt-to-gross domestic product ratio of1.6 to 1, and by 2016, the USPS’ debt-to-income ratio would be 1.5 to 1. Donahoe said even if the USPS were able to implement thestrategic initiatives in its plan and receive legislative relief on its retiree health benefits pre-funding, in 2016 it would only make about$1.5 billion profit.

Focusing on the USPS 5-year Plan to Profitability, Donahoe reminded the audience that as the USPS’ volume growth flattens and itsinfrastructure costs continue to grow as deliveries continue to grow, its universal service obligation makes it an expensive burden todeliver to 165 million houses 6 days per week. The Postmaster General said that there are multiple factors contributing to theproblems of the USPS, including volume declines due to the internet, a flat economy, and internal USPS issues.

“We cannot grow our way out of this problem,” Donahoe said in response to questions on USPS revenue growth ideas. He said whenyou compare the mail and packages revenue streams – the losses in mail are faster than in packages growth. “We have excesscapacity in our network, routes, and post offices,” he said, “and a burden of health care that needs to be resolved.” “Any goodbusiness will resolve those issues and work on growing this industry,” he said, noting that “we’ve spent 5 years wrestling over what todo with retiree health benefits, and we need to get it behind us and grow going forward.”

“I see a very bright future for mail,” the Postmaster General told the PV2020 audience in terms of looking at the Postal Service in2020. He said that doesn’t mean 200 billion pieces of mail again, but said there are growth opportunities out there, and there is valuein the mail that allows customers to grow business, and allows the USPS to continue its platform to match up with the digital worldwhere there are big opportunities. “Mail is still the most direct way to get in front of a customer’s eyes,” he said, asking participantshow many people “come home every day, go to their mail and throw it in the trash without looking at it.” “No one,” he said.

He said the USPS will be creating more opportunities over the course of time tied to the delivery “gateway.” “We will know within 5minutes when something is delivered to a house,” he said, “and be able to connect to that physical mail…and those opportunities areendless.” “Mail is digital and tactile,” he said, noting that printers are working to put mail in the box that will catch the recipient’s eye.

In terms of packages, Donahoe said the USPS has the “largest reach in the world,” because UPS and FedEx have more restrictions,particularly in remote areas. He said the USPS is in an excellent position to create options for people to control their package deliveryoptions with the click of an iPhone.

“We are getting into the digital space because we think it is important to be in that space,” the Postmaster General said, noting thatrecently appointed USPS president of digital solutions Paul Vogel would talk more the following day of the conference [see relatedarticle below]. He said as far as the idea of bill payment online or digital mailbox, “there are too many already providing it, it is aninundated market.”

“But there are areas the USPS should be working with both senders and receivers, ways to link up digital and physical,” Donahoe toldthe PV2020 participants, noting that the USPS hears what its customers are saying and should get its feet wet. “We may fail on somethings,” he said, ‘but then move on quickly and try something else.” “We think there is a spot in there for us somewhere,” he said, “on authentication, cash management, secure messaging – we have the secure trusted platform from the physical world backing thatup, so some opportunities to move into digital.” “We want to work with the Administration on those ideas,” he said, “as well as listento our customers – it is no good to invent products no one uses.” “The key thing is for us as we look at these things – as it is for manybig companies – is monetizing some of the initiatives,” Donahoe said. “People expect digital to be free,” he said.